I.

Mr. Hubbs is the sole surviving heir of Mrs. Hubbs, an American citizen residing in the
Philippines. Mrs. Hubbs died on 22 February 2018. At the time of Mrs. Hubbs’ death, she
left the following community properties:

(a) Condominium Unit with a market value of Php11,000,000 and an acquisition cost
of Php3,000,000;
(b) Php4,00,000 cash deposited with Bank of the Philippine Islands; and
(c) Toyota Fortuner with a market value of Php1,500,000.

The Toyota Fortuner was acquired at a cost of Php1,800,000.

Mr. Hubbs sought your advice and raised the following questions:

(a) How much is the gross estate? (2.5%)

(b) Can he withdraw the amount of Php4,000,000 without the need of submitting the
Certificate Authorizing Registration? (2.5%)
(c) Can he pay the tax on installment? (2.5%)
(d) Will he pay interest and surcharge in addition to the estate tax? (2.5%)

Answer his questions.

II.

On January 10, 2018, Maria Reyes, single-mother, donated cash in the amount of
P100,000.00 to her daughter Cristina, and on June 20, 2018, she donated another
P100,000.00 to her son Crisanto. On December 10, 2018, she donated Php100,000 to
her friend, Sheila.
1. Are these donations subject to tax? (2.5%)
2. Is there a mode to avoid the payment of tax? (2.5%)

III.

On September 17, 2015, Data Realty, Inc., a real-estate corporation duly

organized and existing under Philippine law, sold to Jenny Vera a condominium unit at
Freedom Residences in Malabon City with an area of 32.31 square meters for a contract
price of ₱3,000,000.00. The condominium unit had a zonal value amounting to
₱2,877,000.00 and fair market value amounting to ₱550,000.00.

Is the transaction subject to value-added tax and documentary stamp tax? Explain
your answer. (2.5%)
IV.

Petron Corporation sold petroleum to Tiger Airways, which has flights from the
Philippines to any destination within the Philippines and from the Philippines to a foreign
destination.
1. Is the sale of the petroleum subject to VAT? (2.5%)
2. Are the services rendered by or sales made by Tiger Airways subject to VAT?
(2.5%)

V.
 Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land,
including improvements thereon. The Bureau of Internal Revenue (BIR) received a report
that the lots sold were undervalued for taxation purposes. After an investigation, BIR
concluded that the subject properties were used for commercial purposes, thus, the zonal
valuation must be increased to Php2,000 per square meter. BIR assessed Aquafresh of
CGT and DST deficiencies. Aquafresh protested the assessments and argued that the
subject properties were located in Barrio Banica, Roxas, where the pre-defined zonal
value was Php 650.00 per square meter based on the “Revised Zonal Values of Real
Properties in the City of Roxas”. Aquafresh argued that since there was already a pre-
defined zonal value for properties located in Barrio Banica, the BIR officials had no
business re-classifying the subject properties to commercial. Is the act of the BIR officials
in re-classifying the subject properties legally allowed? (5%)

VI.

UB School requested for the issuance of a confirmatory ruling from the Bureau of
Internal Revenue. In the letter request, UB School raised several points in order to
support its claim that since it is a non-stock non-profit educational institution, all its income
is exempt from tax. The Commissioner issued a ruling denying the tax exemption of UB
School. The Chief Financial Comptroller of UB School went to your office for your advice
as to UB School’s remedy.

1. What is your advice? (2.5%)

2. If an assessment has already been issued by the Regional Director, would your
advice be the same? (2.5%)

VII.

Quezon City enacted an ordinance on socialized housing tax. Effective for five (5)
years, the Socialized Housing Tax ( SHT ) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land banking; (b) improvement
of current/existing socialized housing facilities; and (e) financing of public-private
partnership agreement of the Quezon City Government and National Housing Authority (
NHA ) with the private sector.

Affected taxpayers filed a petition for certiorari under Rule 65 of the Rules of Court
with prayer for the issuance of a temporary restraining order (TRO) seeking to declare
unconstitutional and illegal the ordinance enacted by Quezon City. They argued that the
collection of the SHT is a kind of class legislation that violates the right of property owners
to equal protection of the laws since it favors informal settlers who occupy property not
their own and pay no taxes over law-abiding real property owners who pay income and
realty taxes.

(a) Is the law illegal and unconstitutional? (2.5%)

(b) Is the remedy of the taxpayers proper? (2.5%)
(c) If the RTC decides against the taxpayer, what is the remedy of the taxpayer?
(2.5%)

VIII.

The City of Manila assessed and collected taxes from NCC, Inc. pursuant to
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on
Retailers) of the Revenue Code of Manila. At the same time, the City of Manila imposed
additional taxes upon the petitioners pursuant to Section 21 of the Revenue Code of
Manila, as amended, as a condition for the renewal of their respective business licenses
for the year 1999. Section 21 of the Revenue Code of Manila stated:

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 “Section 21. Tax on Business Subject to the Excise, Value-Added or
Percentage Taxes under the NIRC - On any of the following businesses and
articles of commerce subject to the excise, value-added or percentage
taxes under the National Internal Revenue Code, hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT
(1%) per annum on the gross sales or receipts of the preceding calendar
year is hereby imposed:

A) On person who sells goods and services in the course of

trade or businesses; x x x PROVIDED, that all registered
businesses in the City of Manila already paying the
aforementioned tax shall be exempted from payment thereof.”

NCC, Inc. paid under protest and thereafter requested the City Treasurer for the
tax credit or refund of the local business taxes paid under protest. The City Treasurer
denied the protest. By reason of the denial of the protest, NCC, Inc. filed a Petition before
the Regional Trial Court (RTC) questioning the constitutionality and legality of the
ordinance.

(a) Is there double taxation? (2.5%)

(b) Should the case be dismissed? (2.5%)
(c) If the RTC decided against NCC, Inc., what is the remedy of NCC, Inc.? (2.5%)

IX.

Chris is a marketing supervisor of NCC, Inc. During the taxable year, he received
housing benefits in the amount of Php15,000 and productivity bonus in the amount of
Php85,000. NCC, Inc. did not withhold any tax from these benefits. Upon discovery, the
Bureau of Internal Revenue (BIR) assessed NCC, Inc. of deficiency taxes. NCC, Inc.
argued that the BIR should collect from Chris because he is the income earner.

(a) Should the benefits be subject to tax? If you answer in the affirmative, what tax
shall be imposed? (2.5%)
(b) If these benefits are subject to tax, is the BIR correct in assessing the tax
against NCC, Inc.? (2.5%)

X.

Alex is an accounting specialist of NY World, a foreign corporation engaged in

business in the Philippines. In 2018, Alex received a hefty amount of salaries and
bonuses. Being a lucky year, he won the Php10,000 lotto winnings and gained from the
sale of the shares she bought from a foreign corporation doing business outside the
Philippines and a domestic corporation. These shares are not listed in the stock
exchange.
(a) Is Alex required to file an annual income tax return? (2.5%)
(b) Are the sales of his shares of stock subject to tax? If you answer in the
affirmative, what rates shall apply? (2.5%)

XII.

Rori is a social media specialist of Rubix, Inc. To make both ends meet, Rori
established a retail business in January 2018. In 2018, she earned Php500,000 gross
sales and incurred expenses in the amount of Php200,000. All expenses are not
substantiated with official receipts. Rori went to your office and asked you the following
questions:

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 (a) What is the method of imposing income tax and business tax liabilities that will
result to the least tax exposure? (2.5%)
(b) What type of deduction will minimize the tax liability of Rori? (2.5%)

XIII.

NY Inc. is a proprietary educational institution established in 2012. It earns income

from tuition fees, canteen concessionaires, bookstore and dormitory. For the taxable year
2018, NYC earned 25% of its gross income from canteen concessionaires. Twenty-five
percent (25%) of the gross income was sourced from bookstore and dormitory. The
remaining amount was sourced from tuition fees.

After investigation, NY received a Formal Letter of Demand with Assessment

Notice (FLDAN). The FLDAN indicates deficiency minimum corporate income tax. NY Inc.
questioned the assessment because

(a) Should MCIT be imposed on the income of NY Inc.? (2.5%)

(b) Can NY Inc. deduct expenses? (2.5%)
(c) Will NY Inc. be subject to tax if it is a non-stock non-profit educational
institution? (2.5%)

XIV.

The administrator of the estate of Henry Sy sought your advice regarding the
following issues:
1. Henry Sy bought a burial lot on January 10, 2015 and the estate incurred cremation
expenses on May 10, 2018. The acquisition cost remains to be unpaid.
2. The value of the burial lot at the time of purchase is Php2,000,000. However, at
the time of Mr. Henry Sy’s death on May 1, 2018, the value of burial lot increased
to Php3,000,000.

(a) Should the administrator deduct the cost of burial lot and cremation fees? (2.5%)
(b) Should the administrator include the burial lot as part of the gross estate? If your
answer is in the affirmative, how much is the lot’s valuation? (2.5%)

XV.

Power Sector Assets and Liabilities Management Corporation (PSALM) is a

government-owned and controlled corporation (GOCC) created under the Electric Power
Industry Reform Act of 2001 (EPIRA). The principal purpose of PSALM is to manage the
orderly sale, disposition, and privatization of the National Power Corporation (NPC)
generation assets, real estate and other disposable assets, and Independent Power
Producer (IPP) contracts.

PSALM conducted public bidding for the privatization of the Pantabangan Masiway
Hydroelectric Power Plant and the Magat Hydroelectric Power Plant. The BIR
subsequently issued a letter to the NPC demanding immediate payment of deficiency
value added tax (VAT) for the sale of the power plants. NPC indorsed the letter to PSALM.
Is the sale of the power plants subject to VAT? Explain. (5%)

XVI.

Klaus, Inc., a domestic, VAT registered corporation engaged in the land

transportation business, owns a house and a lot along Katipunan St., Quezon City. This
property is being used by Klaus, Inc.’s president and single largest shareholder, Atty.
Krimson, as his residence, No business activity transpires there except for the company’s
Christmas party which is held there every December. Atty. Krimson recently grew tired of

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the long commute from Katipunan to his office in Makati City and caused the company to
sell the house and lot for Php2,500,000. The sale as recorded in the book of Klaus, Inc.
as investment in real property.

(a) Is the sale of the said property subject VAT? (2.5%)

(b) Is the sale subject to 6% capital gains tax or regular corporate income tax
of 30%? (2.5%)

XV.

Lepanto Ceramics, Inc. (LCI) filed a petition for corporate rehabilitation under RA
10142 with the RTC in Calamba City. Aside from financial difficulties, the petition for rehab
also alleged LCI's tax liability at 6.3 million pesos. The Rehabilitation (Rehab Court)
issued a Commencement Order (Order).

The Order declared LCI under rehab and suspended all actions or proceedings, in
court or otherwise, for the enforcement of claims against LCI. It also directed the BIR to
file and serve on LCI its comment or opposition to the petition, or its claims against LCI.

Despite this, the Assistant Commissioner, Group Supervisor, and Examiner sent
LCI a notice of informal conference, informing the latter of its tax liabilities for the fiscal
year ending June 30, 2010. Despite receiving LCI's letter-reply regarding the pendency
of a rehab proceeding, the BIR sent LCI a Formal Letter of Demand.

A petition for indirect contempt of court was filed by LCI against the revenue
officers for defying the Order. In their defense, they argue that their acts do not amount
to a defiance of the Commencement Order as it was done merely to toll the prescriptive
period in collecting deficiency taxes, that their acts of sending a Notice of Informal
Conference and Formal Letter of Demand do not amount to a "legal action or other
recourse" against LCI outside of the rehabilitation proceedings and that the indirect
contempt proceedings interferes with the exercise of their functions to collect taxes due
to the government.

Are the revenue officers guilty of indirect contempt? (5%)

XVI.

Fishwealth was assessed for income tax, Value Added Tax and withholding tax.
After Regional Director issued a Final Decision on Disputed Assessment (FDDA),
Fishwealth filed a Letter of Reconsideration with the Regional Director on the 30th day
counted from the date of receipt of the FDDA. The Letter of Reconsideration was denied
and the decision was received by Fishwealth on March 20, 2019. The Collection Division
then issued a Preliminary Collection Letter which prompted Fishwealth to file its Petition
with the Court of Tax Appeals on April 5, 2019. The Commissioner of Internal Revenue
argued that the Petition with the Court of Tax Appeals was filed out of time.

(a) Was the Petition filed out of time? (2.5%)

(b) What is the remedy of Fishwealth after the receipt of the FDDA? State the
reglementary period. (2.5%)

XVI.

On June 5, 1997, Solidbank Corporation (Solidbank) entered into an agreement

with Luzon Hydro Corporation (LHC), whereby the former extended to the latter a foreign
currency denominated. Pursuant to the Agreement, LHC is bound to shoulder all the
corresponding internal revenue taxes required by law to be deducted or withheld on the
said loan, as well as the filing of tax returns and remittance of the taxes withheld to the

5
Bureau of Internal Revenue (BIR). On September 1, 2000, Metrobank acquired
Solidbank, and consequently, assumed the latter's rights and obligations under the
aforesaid Agreement.

On March 2, 2001 and October 31, 2001, LHC paid Metro bank the loans payable.
Pursuant to the Agreement, LHC withheld, and eventually paid to the BIR the ten percent
(10%) final tax on the interest portions of the aforesaid payments. The final tax for the
month payments made in March 2001 was remitted on April 25, 2001.

According to Metrobank, LHC mistakenly remitted the aforesaid amounts to the

BIR as well when they were inadvertently included in its own Monthly Remittance Returns
of Final Income Taxes Withheld for the months of March 2001 and October 2001. Thus,
on December 27, 2002, it filed a letter to the BIR requesting for the refund thereof.
Thereafter and in view of respondent the Commissioner of Internal Revenue's (CIR)
inaction, Metrobank filed its judicial claim for refund via a petition for review filed before
the CTA on September 10, 2003.

The CTA En Banc affirmed the CTA Division's ruling. It held that since Metrobank's
March 2001 final tax is in the nature of a final withholding tax, the two (2)-year prescriptive
period was correctly reckoned by the CTA Division from the time the same was paid on
April 25, 2001. As such, Metro bank's claim for refund had already prescribed as it only
filed its judicial claim on September 10, 2003. Rule on the legality of the decision of the
CTA en banc. (5%)

XVII.

BHC is the registered owner of two parcels of land located in Fort Bonifacio, Taguig
City.
The City Government of Taguig (Taguig City) sent two letters dated November 6,
2007 to BHC, requiring the settlement of real property taxes on the subject two lots for
the years 2005, 2006, and the 4th quarter of 2007. BHC paid the real property taxes
indicated in the letters.

However, even prior to the November 6, 2007 letters, the subject two lots had
already been declared delinquent pursuant to a Notice of Delinquency posted on October
22, 2007, levied upon through a Warrant of Levy on September 26, 2007, advertised for
sale on November 5, 2007 and November 12, 2007 by public auction to satisfy the taxes
for the subject two lots, respectively, and were sold at public auction to Mark Anthony M.
Litonjua (Litonjua) on November 15, 2007.

BHC filed a Complaint before the Regional Trial Court against City Government
and its officials. BHC alleged that there was no valid justification to sell the subject two
lots at public auction given the fact that it had paid and settled the required real property
taxes within the month of November 2007 pursuant to the letters sent by Taguig
City. BFIC prayed for a judgment: (1) nullifying the public auction sale of the subject two
lots held on November 15, 2007 and all other proceedings taken pursuant thereto; (2)
enjoining the Register of Deeds of Taguig City from cancelling its land titles, consolidating
ownership thereof in Litonjua's favor and issuing new TCTs in the name of Litonjua; and
(3) ordering respondents to compensate BHC actual damages in the amount of P2 million.

Litonjua filed a Motion to Dismisswherein he sought the dismissal of the Complaint

for lack of jurisdiction for non-compliance with the requirements for an action to assail the
validity of a tax delinquency sale under Section 267, particularly the deposit requirement
of the said provision.

If you were the judge, what will be your decision? (5%)

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-nothing follows-